2. Impact on Hibernia

Hibernia Bank was Louisiana’s largest and oldest banking institution. It survived hurricanes Katrina and Rita and eventually recovered. But like many Gulf Coast businesses, how the bank dealt with missing employees, damaged offices and desperate customers is the enduring story.

HIBERNIA: Main office knee-deep in water / Photo: Neil Alexander

The disaster’s impact on the company was considerable:

130 locations damaged or destroyed.

3,500 employees displaced, some for as long as seven months.

A $175 million loan loss provision.

$26 million in disaster assistance to employees, with more likely.

There were also positive notes:

500 positions moved permanently from New Orleans to safer locations in Dallas, Houston and Shreveport.

A $4.5-billion inflow of new deposits by yea-rend.

Relocation of the company’s vital mainframe computers from New Orleans to a more-secure Little Rock site.

Aftermath

By mid-2006, when this account ends, the bank had largely recovered, although some longer-range consequences still were being addressed. In addition to rebuilding, Hibernia also completed a merger into Capital One Financial Corporation. This transaction, first planned for Sept. 1, 2005, was delayed briefly and consummated Nov. 16, 2005.

A successful merger of this size is a significant accomplishment in the best of times, but was even more remarkable on the heels of the disasters. Had it not been for the understanding and assistance of Capital One’s management, Hibernia’s last and finest hour might have been much different.

Miles Reidy

Preparation

The storm made its jog westward at the start of a weekend. This posed a special problem for a bank that was open on Saturdays. Financial transactions coming through branch offices routinely were held until Sunday or Monday to be processed at the company’s operations centers. This paperwork would have to stay in the branches until after the storm passed.

Back-up sites

Hibernia’s Incident Management Team, (IMT) a 30-person group charged with overseeing disaster recovery, had been meeting regularly, monitoring Katrina. By the afternoon of Friday, Aug. 26, 2005, Greg Stelly, team coordinator, was concerned, and by Saturday, a full-scale mobilization of technical and operations staff was ordered. Key employees, “Priority 1” staff, were packed and on their way to backup sites in Shreveport, LA, Houston and Dallas.

Randy Bryan

Several hundred were involved in key systems — mainframe, telecommunications, network operations, check processing. They would ensure these would be “up” and functioning after the storm. Well aware that “time is on the side of the problem,” the Incident Management Team moved urgently to get recovery assets in place.

Overall direction

As events unfolded, a 7-person core group evolved to direct high-level decisions. Interestingly, only one member of the company’s executive management — Ron Samford — was on the IMT. The rest were senior managers and specialists from every area of the bank. This was one key to its effectiveness. The full team implemented thousands of activities required. Members met by teleconference several times a day even after the storm scattered them across the southeast. Most of the core members found their way to a disaster recovery command center set up in Shreveport.

Wally Ford

Their modus operandi was to report results of activities, do gap analysis and troubleshooting, then look ahead to next steps. The exhausting, mind-bending work went on day and night. The success of the recovery rode on their shoulders. Their first problem was how to get all of their mission-critical people out of harm and into the recovery center.

Helicopter ride

The chilling conditions first wrought by Katrina weighed on the leaders at Hibernia and Capital One. There were stories of uncontrolled fires raging in addition to storm and flood damage, but news accounts were so lurid they could not be trusted. So concerned were they that two executives – one from each company, along with a structural engineer – made a helicopter reconnaissance of the city. They wanted to see the damage for themselves.

Superdome

Randy Bryan, Hibernia’s sales head, arranged for a flight on Sunday, Sept. 4, with a service that had rescued Hibernia people three days earlier from the company’s operations center in the city.

Miles Reidy, Capital One’s merger coordinator, accompanied Bryan.

Wally Ford, a Houston structural engineer, went with them to provide a professional’s view of what they saw.

Reidy had a checklist of things to look for. It was important to see if the port of New Orleans looked intact. The three carefully studied wharves, cranes and vessels along the waterfront. “You needed to see if any of the ships had broken loose,” he said. Rediy and Bryan had many transportation questions — What did the highways look like? The rail yards and tracks? “We looked at the main drivers of the economy — Uptown, the French Quarter, the Central Business District and some of the manufacturing areas.”

Tank Farm

They studied water and sewer plants. The structural engineer “examined the highrise buildings to see if he could figure out – outside of wind damage – whether there were any material structural things,” Reidy noted. “We were worried, if the highrises had sustained damage, whether they had to be rebuilt.”

The picture from the air

What they saw was eye-opening. To be sure, there was flooding in all of the areas where they expected to see it, but “none of the key drivers of commerce really looked materially damaged,” Reidy recalled. The French Quarter, the ports and most of the transportation infrastructure “seemed to be up and running.” Altogether, what the three saw was cautiously reassuring.

Industrial Canal

“The Superdome had been cleared by Sunday,” Reidy said. “There was nobody standing around on the highways. You could see boats moving around, but it was not that bad. The Convention Center had been cleared.”

“The news anchors were still running footage that allowed the viewer to think it was live, but it was two to three days old. There was lots of water damage, but nothing that was catastrophic to … commerce.”

Bryan recalled that electric transmission towers and lines looked intact. “It was staggering to see how much water” there was, especially out near the lake (Pontchartrain), although the West Bank looked better. “Wind damage seemed minimal. The French Quarter was not under water or fallen down. The infrastructure was intact.”

Central Business District

He scribbled a note (the only way they could communicate in the noisy aircraft), “Look, Miles, no fires.” When they got back to Houma, walking away from the helipad, he turned and asked Reidy, “What do you think?”

“It’s all going to depend on how many people come back,” Reidy replied. Then he slipped away to report to his boss, Capital One CEO Rich Fairbank. His conclusion? Although deeply wounded, the city could recover.

Capital One’s ‘man on the ground’

Reidy, 43, was a senior vice president with Capital One. He’d been assigned to lead the merger of Hibernia into that company and was well-suited to the task. He’d lived in New Orleans several years while working at FNBC, before it was purchased by Bank One. He was a man with a subtle blend of good humor, crisp decision-making, unflappable disposition and genuine concern. He and his wife, MaryElizabeth (an oral surgeon on the faculty at the University of Maryland) had a son, 10.

Industrial Area

During the aerial survey, he had a tense moment aboard the chopper. He’d unbuckled to move closer to the door for a better view. Then the pilot banked. “I slammed into the door, broke a tooth and the door opened a little bit … The rest of that flight I was buckled in!” When he got back to Maryland, his wife was not amused. “She fixed it and said, ‘You moron’ … and gave me the ‘bad Novocain’ that wears off early,” he recalled ruefully.

Crucial assessment

The assessment from Capital One’s trusted “man on the ground” was coming at a crucial juncture for Hibernia. “You have to remember at that point in time, all of the news coming out of New Orleans was sensational,” Reidy recalled.

Highways

“For our (Capital One) executives and our board members, that was the only source of information they had.” Uncertainties were casting a shadow over the pending merger, which already had been delayed a week.

Reidy’s call to Fairbank from the Houma airport that Sunday night helped shape what happened next. The Capital One CEO held discussions with his management team, his board and his advisors. Then, Monday morning, he called Herb Boydstun, Hibernia’s president, and laid out his concerns.

He said he did not think he could now pay the originally agreed price. Boydstun replied that he expected the deal to go through as contracted. They agreed to talk again later. It was the beginning of a tense and complicated day, with the $5-billion merger poised in the balance.

Looking back, Reidy chuckled, “Don’t ever close a deal in the middle of a hurricane.”